I am the Founder of Community of Liberty, a chapter based organization committed to pursuing the art of living in liberty, a member of the Publication Committee of the Claremont Review of Books, an Advisor to TheGold StandardNow.org, and a juror for the Bastiat Prize for Journalism. I have just published with my co-author Ralph Benko the booklet, "The 21st Century Gold Standard: For Prosperity, Security and Liberty," now available as a free download at AGoldenAge.com. I bring to my columns an extensive background in the investment management business, including my experience as an equity portfolio manager, strategist, president of my former firm’s retail sales and marketing subsidiary and member of the parent firm’s management committee. As such, I have been a student and observer of the political/economy and its affects on markets, businesses, and my own business for more than 30 years.

Mitt Romney Paid 30%, Not 13% In Federal Income Taxes

"The majority of the Romneys’ income is taxed twice – first at the corporate level, and a second time when they report it on their personal income tax return." (Photo credit: Wikipedia)

The presumptive Republican nominee for President of the United States and wealthy businessman Mitt Romney at a press conference last Thursday said: “Over the past 10 years, I never paid less than 13%” in federal taxes.

No doubt Romney had considered carefully how to handle the tax issue before deciding to just put the 13% number out there and then move on: “I just have to say, given the challenges that America faces — 23 million people out of work, Iran about to become nuclear, one out of six Americans in poverty — the fascination with taxes I paid I find to be very small-minded.”

Really? This statement ignores rather than confronts President Barack Obama’s narrative that the big issue before the American people in this election is fairness and social justice. And the idea that someone who makes $22 million in a single year pays only 13% in federal income taxes will be used to feed the envy and resentment the President hopes to ride to re-election.

I can only wish that Romney had engaged this issue by adding the following sound bite: “Properly calculated, my tax rate was about 30%.”

Such a statement may have led to howls of protest from his opponents and the liberal press, with accusations that Romney was obfuscating how he was able to lower his tax rate.

So what. At least this approach would have given Romney the opportunity to engage the debate over fairness and social justice on his own terms. Explaining a tax system that on its face seems unfair would have treated the American people with respect and been consistent with Romney’s identity as a serious man who will be honest and direct with the voting public.

There are two reasons that the Romneys’ tax bill is below 15%. According to their 2010 tax return (the latest available), Mr. and Mrs. Romney reduced their taxable income by the $3 million they gave to charities.

The second and most important reason is the majority of the Romneys’ income is taxed twice – first at the corporate level, and a second time when they report it on their personal income tax return.

Taxable interest income accounted for $3.3 million of their $21.7 million in total income. Since companies are able to reduce their income dollar for dollar with the interest they pay out, interest income is not taxed at the corporate level, but only once as personal income. In the case of the Romneys, it was taxed at 35%, the top marginal personal income tax rate.

The Romneys also reported $4.9 million in ordinary dividends, of which $3.3 million qualified for the 15% tax rate. Unlike interest payments, corporations may not deduct dividends from their income. Dividend income therefore is taxed twice, first at the corporate level, and then again when it is reported on an individual’s personal income tax return.

A precise calculation of this double tax is impossible to make because the tax rates paid by different corporations vary widely – from 0% by GE and General Motors to the top corporate tax rate of 35%. A rigorous economic analysis would use the top marginal tax rate because that is the rate that affects economic decisions. However, for the purpose of this analysis, a reasonable estimate would use the average U.S. corporate tax rate which, over longer periods of time, has been 25%.

Based on a 25% tax rate, for every $133 a corporation earned, it had to first pay $33 in federal income taxes before it could distribute $100 in dividends. Next, on every $100 of dividend income received, the Romneys paid an additional $15 in taxes. The combined tax of $48 totals out to a 36% rate on dividend income ($48/$133), which approximates the top personal income rate imposed on interest income.

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The tax rate for Bain is 36%. The defacto raid paid by Bain is uncertain since many of its assets are not within the United States. But assuming their returns are 100% valid Bain Capital still paid less than 20% in actual taxes paid. This is because of a a variety of exemptions available to corporations which deal in venture business. If Mr. Kadlex wishes to be accurate he might want to check Bains defacto taxes, no tax rate. Granted this would still increase the % of Taxes Mr. Romney paid, but not to 30%, not even to 20%, and as a percent it would still be less than most stop rated surgeons, engineers or lawyers pay on their non-investment income. But I am all for a re-evaluation of our tax system. Lets make it simpler and clearer… and lets do this at the state and municipal level as well.

The tax rate for Bain is 36%. The defacto rate paid by Bain is uncertain since many of its assets are not within the United States. But assuming their returns are 100% valid Bain Capital still paid less than 20% in actual taxes paid. This is because of a a variety of exemptions available to corporations which deal in venture business. If Mr. Kadlex wishes to be accurate he might want to check Bains defacto taxes, not tax rate. Granted this would still increase the % of Taxes Mr. Romney paid, but not to 30%, not even to 20%, and as a percent it would still be less than most stop rated surgeons, engineers or lawyers pay on their non-investment income. But I am all for a re-evaluation of our tax system. Lets make it simpler and clearer… and lets do this at the state and municipal level as well.

Wrong “Anon” or should I say ‘troll’. The 15% taxed income to Romney was not taxed twice. Did you read his taxes? I did. The vast majority of income (of any type: dividends, interest, etc) that flows to Mitt & Ann Romney comes from “foreign sources”, and those sources are not taxed (probably not at all, and certainly not in the USA). So, despite the fact that Bain would squeal like a stuck pig if any foreign person, business, or government caused Bain any trouble, and they would insist that the US government send diplomats, CIA, and/or US military resources to protect their overseas assets as “American interests” [See Venezuela as an example], Bain will never pay any US taxes at the corporate level. So, at the corporate level, these Bain portfolio companies re part of Romney’s “47%” – they are “taker”, “freeriders”. So, the next time that US oil interests lobby the US to go into the next war to protect their foreign assets, just remember that they haven’t paid a dime for the bullets, tanks, drones, and American soldiers that are sent to protect their balance sheet.

Wrong “Anon” or should I say ‘troll’. The 15% taxed income to Romney was not taxed twice. Did you read his taxes? I did. The vast majority of income (of any type: dividends, interest, etc) that flows to Mitt & Ann Romney comes from “foreign sources”, and those sources are not taxed (probably not at all, and certainly not in the USA). So, despite the fact that Bain would squeal like a stuck pig if any foreign person, business, or government caused Bain any trouble, and they would insist that the US government send diplomats, CIA, and/or US military resources to protect their overseas assets as “American interests” [see Venezuela as an example], Bain will never pay any US taxes at the corporate level. So, at the corporate level, these Bain portfolio companies are part of Romney’s “47%” – they are “takers” aka “freeriders”. So, the next time that US oil interests lobby the US to go into the next war to protect their foreign assets, just remember that they haven’t paid a dime for the bullets, tanks, drones, and American soldiers that are sent to protect their balance sheet.

He obviously did not pay taxes on his Swiss account. The account disappeared from his tax returns the year that there was an amnesty. So he took advantage of it and paid all his back taxes plus a penalty. It is so obvious. That is why under the pain death he will not release his previous tax returns.

Under this logic I guess I paid 60% then… The Corporation I work for paid 36% then I paid my 24%. My mechanic must pay 80% because of course he needs to add my tax to his right? A few more people in that chain and we are paying more than we make :)

PS: This article has more spin that a toy top…Obvious tells that the author is a paid hack (and not a very good one)

“2010 Tax return, the latest available” It is the ONLY available…

I wonder how this author decided that Romney Inc. paid the highest amount possible? Especially since Romney has been so good at avoiding taxes?

I would love to see a poll of how many people actually fall for this stuff?